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Loaded for Bear?

March 15th, 2008 by Jacob Ukelson

I follow quite a few blogs, especially in the startup and VC space, and what surprises more than anything is that not many are discussing the pending US (WW?) recession. I first posted on this in October 2007 (Subprime Mortgage Crisis and Startups)  but since then things have become a lot clearer, and a lot worse. In my opinion it is time to batten down the hatches and get ready to weather the storm.

What does that mean if you are a startup? Well, first off - if you are already funded and going to need to engage in a new round any time soon (say in the next 9, maybe even 12 months) - I would recommended moving your schedule up and doing it now.  It isn’t that the VC’s money will evaporate anytime soon, it is just that they will start being more cautious with investments, things will take longer and valuations will go down (as far as I can tell they already are). Right now most VCs don’t seem to be worrying too much about the upcoming recession - but sometime soon (I’ll guess sometime in the summer) they will - so use this time to your advantage.

If you are pre-seed, and haven’t already been funded, be prepared for a longer gestation period before you can reach the appropriate milestones to get to your next round of funding (especially if they have anything to do with customers, or market validation). In my opinion, you can just assume that anything you start now won’t have a market for about a year. That means that if you have any chance at all to get funding soon - do it now (perhaps at even a lower valuation), and use the rest of this year to build up your product and get ready for 2009.

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